For performance obligations satisfied over time, revenue is
generally recognized using costs incurred to date relative to total
estimated costs at completion to measure progress. Incurred costs
represent work performed, which correspond with, and thereby best
depict, transfer of control to the customer. Contract costs include
labor, materials, subcontractors’ costs, other direct costs, and
indirect costs applicable on government and commercial
contracts.
For performance obligations which are not satisfied over time per
the aforementioned criteria above, revenue is recognized at the
point in time in which each performance obligation is fully
satisfied. The Company’s small UAS, MUAS and UGV product sales
revenue is composed of revenue recognized on contracts for the
delivery of small UAS, MUAS and UGV systems and spare parts,
respectively. Revenue is recognized at the point in time when
control transfers to the customer, which generally occurs when
title and risk of loss have passed to the customer.
Performance obligations satisfied over time accounted for
65%
and
63%
of revenue during the three and six months ended October 29, 2022,
respectively. Performance obligations satisfied over time accounted
for
51%
and
55%
of revenue during the three and six months ended October 30, 2021,
respectively. Performance obligations satisfied at a point in time
accounted for
35%
and
37%
of revenue during the three and six months ended October 29, 2022,
respectively. Performance obligations satisfied at a point in time
accounted for
49%
and
45%
of revenue during the three and six months ended October 30, 2021,
respectively.
On October 29, 2022, the Company had approximately $293,147,000 of
remaining performance obligations under fully funded contracts with
its customers, which the Company also refers to as funded backlog.
The Company currently expects to recognize approximately 58% of the
remaining performance obligations as revenue in fiscal
2023 and the remaining 42% in fiscal
2024.
The Company collects sales, value added, and other taxes concurrent
with revenue producing activities, which are excluded from revenue
when they are both imposed on a specific transaction and collected
from a customer.
Contract
Estimates
Accounting for contracts and programs primarily with a duration of
less than six months involves the use of various techniques to
estimate total contract revenue and costs. For long-term contracts,
the Company estimates the total expected costs to complete the
contract and recognizes revenue based on the percentage of costs
incurred at period end. Typically, revenue is recognized over time
using costs incurred to date relative to total estimated costs at
completion to measure progress toward satisfying the Company’s
performance obligations. Incurred costs represent work performed,
which corresponds with, and thereby best depicts, the transfer of
control to the customer. Contract costs include labor, materials,
subcontractors’ costs, other direct costs, and indirect costs
applicable on government and commercial contracts.
Contract estimates are based on various assumptions to project the
outcome of future events that may span several years. These
assumptions include labor productivity and availability, the
complexity of the work to be performed, the cost and availability
of materials, the performance of subcontractors, and the
availability and timing of funding from the customer.
The nature of the Company’s contracts gives rise to several types
of variable consideration, including penalty fees and incentive
awards generally for late delivery and early delivery,
respectively. The Company generally estimates such variable
consideration as the most likely amount. In addition, the Company
includes the estimated variable consideration to the extent that it
is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the related uncertainty is
resolved. These estimates are based on historical award experience,
anticipated performance and the Company’s best judgment at the
time. Based on experience in estimating these amounts, they are
included in the transaction price of the Company’s contracts and
the associated remaining performance obligations.
As a significant change in one or more of these estimates could
affect the profitability of the Company’s contracts, the Company
regularly reviews and updates its contract-related estimates.
Changes in cumulative revenue estimates, due to changes in the
estimated transaction price or cost estimates, are recorded using a
cumulative catch-up adjustment in the